Needing to bounce
Posted by Sean Hannon
January 3, 2008 at 8:44 am
    Despite yesterday’s dramatic sell-off, not all news was bad. The negative news is all the major averages are now below their 200 day moving averages and appear poised to retest the November lows. The positive news is that yesterday’s breadth was not terrible and we did not experience a 90% down day. That could be viewed one of two ways - either the drop is a prelude of more to come (bearish view) or the market does not have the conviction to press lower (bullish view). I tend to lean in the bearish direction, but there is one way to find the answer - watch the market.  Following yesterday’s decline, we should now see a rally. The depth and length of that rally will provide clues about the future. A weak, failed rally will point to lower prices while a sustained rally will strengthen the bull case. Which way to go? Time will tell.
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Agreed, the NASDAQ closed yesterday right below its 200 MA and I am thinking that and 2600 should hold pretty strongly as support.